CHEAT’S GUIDE TO CRYP­TOCUR­REN­CIES

Min­ing, blocks and MAR­KET caps… What DOES it all MEAN – and should you re­ally IN­VEST?

Collective Hub - - CONTENTS - WORDS LJ CHARLESTON

what does it all mean – and should you re­ally in­vest?

I f the word ‘cryp­tocur­rency’ sends your brain into a hec­tic spin, you’re not alone. There’s a cer­tain skill in be­ing able to ac­cu­rately and sim­ply ex­plain cryp­tocur­ren­cies, but, for many peo­ple, it in­volves plenty of re­search. Re­cently, it feels like ev­ery­one’s post­ing things about their ‘port­fo­lio’ on Face­book, with the world di­vided into bit­coin con­verts and scep­tics.

Don’t want to get lost in din­ner party con­ver­sa­tion? Here’s the low-down on in­vis­i­ble cur­rency, con­sid­ered by some to be the money of the fu­ture.

THE DEF­I­NI­TION

Cryp­tocur­rency is dig­i­tal money, cre­ated as a way to re­place money trans­ac­tions with a dig­i­tal-only ex­change. The word comes from ‘cryp­tog­ra­phy’ – a tech­nique that con­verts in­for­ma­tion into a code which helps track pur­chases and trans­fers. Most cryp­tocur­ren­cies are vari­a­tions on bit­coin – the first cryp­tocur­rency. Sim­i­lar to tra­di­tional cur­ren­cies, cryp­tocur­ren­cies are counted in units. You can say, ‘I own 15.5 bit­coin,’ the same way you’d say ‘I’ve got $15.50.’ But first, if you re­ally want to un­der­stand bit­coin, you should re­ally know a bit more about the elu­sive per­son who cre­ated it…

THE BE­GIN­NINGS

The pseu­do­nym Satoshi Nakamoto (a com­mon Ja­panese name, like John Smith) was given to the cre­ator of Bit­coin, and mys­tery sur­rounds his iden­tity. In 2006, he pro­duced a white pa­per (a re­port to the gov­ern­ment) ex­plain­ing the con­cept of a de­cen­tralised cur­rency he named bit­coin, which he de­scribed at the time as a ‘peer-to-peer elec­tronic cash sys­tem’.

Put at its sim­plest, bit­coin is a dig­i­tal cur­rency that’s se­cured in an on­line ‘dig­i­tal wal­let’. A network of com­put­ers across the world pro­duce or ‘mine’ a vir­tual cur­rency at a cer­tain rate. It’s not con­trolled by the gov­ern­ment or cen­tral banks and is com­pletely un­reg­u­lated.

Satoshi – who bowed out of the project by 2010 – set a limit on the num­ber of bit­coins that are able to ex­ist: 21 mil­lion. Now, you can ei­ther buy bit­coin (via an ex­change agent) or ‘mine’ them. Bit­coin min­ers are re­warded with ex­tra cur­rency if they un­lock ‘blocks’ in the Bit­coin network and ver­ify trans­ac­tions. Any­one can do this, with the cor­rect soft­ware.

THE MAR­KET LEAD­ERS

There are thou­sands of cryp­tocur­ren­cies. Be­sides bit­coin, the most at­trac­tive is Ethereum, which is an open soft­ware plat­form based on blockchain tech­nol­ogy (a de­cen­tralised, digi­tised ledger of all cryp­tocur­rency trans­ac­tions that keeps grow­ing as com­pleted ‘blocks’ are added).

Ac­cord­ing to data sci­en­tist Jonathan Bu­tow, di­rec­tor of Data Wolf, the web­site CoinMar­ketCap is a great place to source cur­rent cryp­tocur­rency prices. “You’ll be able to see a list of all 1319 of them and their rank by mar­ket cap, which is the to­tal amount of USD in­vested,” he says.

Bit­coins are stored in dig­i­tal wal­lets, each of which have a pri­vate key known by the owner. “I’d rec­om­mend hard­ware wal­lets,” says Jonathan. “Sim­i­lar to a phys­i­cal wal­let, like a USB stick, it’s a lot more se­cure.”

HOW TO SPEND IT

To­day, there are var­i­ous on­line stores where you can use bit­coin – or frac­tions of bit­coin – to pay for real things. There are even bit­coin ATMs across the world. Be wary, though, as there are risks that come with any un­reg­u­lated mar­ket. “If you can imag­ine, it’s the min­ers – the network – that’s man­ag­ing the com­put­ers that ac­tu­ally have all the power,” says Jonathan. “If they de­cide to switch off all of their com­put­ers one day, the block chain would no longer be func­tion­ing be­cause you wouldn’t be able to store all those trans­ac­tions. And to make mat­ters worse, there’s no of­fi­cial body you can chase up or way to iden­tify who these peo­ple are.”

WHAT THE BANKS THINK

The world’s cen­tral banks have two ma­jor is­sues they’ve high­lighted: the ques­tion of whether any­thing should be done about the growth of pri­vate cryp­tocur­ren­cies, and whether of­fi­cial ver­sions should be is­sued. In the US, the Fed­eral Re­serve is in­ves­ti­gat­ing cryp­tocur­ren­cies and seems a long way from show­ing pub­lic en­thu­si­asm. It ap­pears the Re­serve Bank of Aus­tralia has no im­me­di­ate plans to is­sue its own dig­i­tal cur­rency, and the Bank of Eng­land has is­sued a cau­tion. Mean­while, the Re­serve Bank of In­dia has banned the use of cryp­tocur­ren­cies as of­fi­cials fear money laun­der­ing and the fund­ing of ter­ror­ist groups.

WHAT’S IN THE FU­TURE?

“The fu­ture is very bright but will not come with­out its fair share of le­gal and reg­u­la­tory hur­dles,” says Jonathan. “Cryp­tocur­rency is still in its in­fancy and we are only be­gin­ning to taste its main­stream adop­tion. The bat­tle lines are drawn be­tween cryp­tocur­ren­cies and [pa­per] money.”

Tellingly, even Bit­coin.com’s CTO Emil Olden­burg has called it “the riski­est in­vest­ment you can make” be­cause there are so many ques­tion marks around its use in the fu­ture. In­stead, he rec­om­mends try­ing bit­coin cash – an off­shoot of the cryp­tocur­rency that claims to have lower trans­ac­tion fees.

Newspapers in English

Newspapers from Australia

© PressReader. All rights reserved.